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Wednesday, June 29, 2005

The BIS and William White

In addition to main establishment types like Paul Volcker, Robert Rubin, Peter Peterson, Steven Roach and David Walker warning about where the US economy is heading, there is now William White, head of the BIS's (Bank for International Settlement, the central bank for central banks) monetary and economics department. The problem is that they don't see any resolve on the part of management of USA, Inc. to bite the bullet and do something that makes a difference taming the massive amounts of USD (debt) being created. The longer the artificial distortion/manipulation of the US economy continues, and indirectly the artificial distortion/manipulation of other economies in the world, the worse the correction in the US. I would guess the US is looking at a depression now instead of a recession although the establishment types are not using the dreaded "depression" word. I'll bet they are privately thinking/talking in those terms.

In a few years or so, people loading up right now with *real* money (gold and silver), that which is *nobody's liability*, at these rediculously low nominal and inflation adjusted prices are going to be quite satisfied with themselves.

Unfortunately there are virtually no good honest fiat (government) or private bank currencies (financial notes, contracts) for the masses to easily flee to now a days in the world. Most people will be stuck with fiat paper and fiat digital *tokens* (the USD) and will pay a severe price in lost purchasing power.

Fortunately there are digital gold and silver *reserved* currencies existing now a days for the knowledgable to flee to in addition to the gold and silver metals themselves. Reserved meaning *redeemable* in gold or silver. The *backing* of a currency, in addition to the reserves, includes things like the character of management, the governance of the currency put in place by management, and so forth.

A list of gold and silver reserved digital currencies

Ultimately Jim Sinclair sees the gold price moving a couple of hundred USD in a day with a spread between bid and ask around USD 50, and silver moving about USD 50 per day with a spread of about USD 5.

The article about the BIS and William White in the Financial Times

BIS warns on domestic and international debt
By Chris Giles in London
Published: June 27 2005

Growing domestic and international debt has created the conditions for global economic and financial crises, the Bank for International Settlements warned on Monday.

The Basel-based organisation's annual report said no one could predict if and when such international economic imbalances would unravel but “time might well be running out”.

The warning by the world's oldest international financial institution the central bankers' bank was designed to puncture the complacency prevalent among economic policymakers after 2004's global growth, the strongest for nearly 30 years.

The BIS urged countries to act together to reduce the risks of disruption caused by “imbalances” in their own economies as well as by the ever-rising US trade deficit and corresponding trade surpluses, particularly in Asia. William White, the head of the bank's monetary and economics department, said the time had come “for a measured withdrawal of the stimulus put into the system.” The BIS report said “one obvious answer” would be to increase interest rates to curb debt-fuelled consumption and asset price booms. But it said such monetary tightening would conflict with the desire to keep unemployment low and avoid deflation.

The BIS urged the US to act first because it “probably faces the least conflict in its macroeconomic policy settings”.

“Given the size of the [US] government deficit, the obvious first step would be to cut expenditures and raise taxes”.

But the BIS report questioned the Bush administration's willingness to impose the required policies to back up its deficit reduction ambition.

Without a smaller budget deficit, lower private sector consumption and higher savings, there was little likelihood of stabilising the ballooning US current account deficit. The ever widening deficit “could eventually lead to a disorderly decline of the dollar, associated turmoil in other financial markets, and even recession”.

Asian currencies, should appreciate against the US dollar, the report said. “Obvious candidates for revaluation,” it said, were the “the Chinese renminbi and other Asian currencies that take their cue from it.”

But the BIS said it doubted politicians or central bankers had the will to implement the necessary policies.

“If what needs to be done to resolve external imbalances is reasonably clear, it also seems clear that much of it is simply not going to happen in the near term,” the report said.

Monday, June 27, 2005

Now David Walker is Warning

Main establishment types like Paul Volcker, Robert Rubin, Peter Perterson and Steven Roach have already warned about where the US economy is heading. Now David Walker, comptroller general of the United States, is warning.

Download the .pdf here

A Glide Path to Ruin

By NICHOLAS D. KRISTOF
Published: June 26, 2005

The biggest risk we Americans face to our way of life and our place in the world probably doesn't come from Al Qaeda or the Iraq war.

Rather, the biggest risk may come from this administration's fiscal recklessness and the way this is putting us in hock to China.

"I think the greatest threat to our future is our fiscal irresponsibility," warns David Walker, the comptroller general of the United States. Mr. Walker, an accountant by training, asserts that last year may have been the most fiscally reckless in the history of our Republic. Aside from the budget deficit, Congress enacted the prescription drug benefit - possibly an $8 trillion obligation - without figuring out how to pay for it.

Mr. Walker, America's watchdog in chief and head of the Government Accountability Office, is no Bush-basher. He started out his career as a conservative Democrat, then became a moderate Republican and has been an independent since 1997.

Now he's running around with his hair on fire, shrieking about America's finances. Well, as much as any accountant ever shrieks.

I asked Mr. Walker about Paul Volcker's warning that within five years we face a 75 percent chance of a serious financial crisis.

"If we don't get serious soon," Mr. Walker replied, "it's not a question of whether it ll come, but when and how serious."

Joseph Stiglitz, the Nobel-winning economist, says he is also "very worried."

"I find it very difficult to know how to put a number" on the probability of a crisis, he added, "but there's a widespread sense in the market that there is a substantial chance."

Another issue is that three-fourths of our new debt is now being purchased by foreigners, with China the biggest buyer of all. That gives China leverage over us, and it undermines our national security.

On fiscal matters both parties have much to be ashamed of, but Republicans should be particularly embarrassed at their tumble. Traditionally, Republicans were prudent, while Democrats held great parties. But these days, the Bush administration is managing America's finances like a team of drunken sailors, and most Republicans keep quiet in a way that betrays their conservative principles.

Senator Chuck Hagel, a Republican, wrote a couple of years ago: "Republicans used to believe in balanced budgets. ... We have lost our way." He's right.

Critics have pounded the Bush administration for its faulty intelligence in the run-up to the war in Iraq. But President Bush peddled tax cuts with data that ultimately proved equally faulty - yet the tax cuts remain cemented in place.

Go to http://www.whitehouse.gov/ and read Mr. Bush's speech when he presented his first budget in February 2001. He foresaw a $5.6 trillion surplus over 10 years and emphasized that much of that would go to paying down the debt.

"I hope you will join me to pay down $2 trillion in debt during the next 10 years," Mr. Bush said then, between his calls for tax cuts. "That is more debt, repaid more quickly, than has ever been repaid by any nation at any time in history." His budget message that year promised that the U.S. would be "on a glide path toward zero debt."

Oh?

More than two centuries of American government produced a cumulative national debt of $5.7 trillion when Mr. Bush was elected in 2000. And now that is expected to almost double by 2010, to $10.8 trillion.

Some readers may be surprised to see me fulminating about budget deficits, since often I'm bouncing over ruts abroad trying to call attention to some forgotten crisis, like Darfur. But there is a common thread: These are issues that aren't sexy, that don't get television time and that most Americans tune out - yet demand action on our part for both moral and practical reasons.

America's fiscal mess may be even harder to write about engagingly than Darfur, because the victims of our fiscal recklessness aren't weeping widows whose children were heaved onto bonfires. But if you need to visualize the victims, think of your child's face, or your grandchild's.

President Bush has excoriated the "death tax," as he calls the estate tax. But his profligacy will leave every American child facing a "birth tax" of about $150,000.

That's right: every American child arrives owing that much, partly to babies in China and Japan. No wonder babies cry.

Saturday, June 25, 2005

Gold Breakout

On a weekly basis gold has broken up through its 7-8 month long down trend line that is the top part of a big bullish triangular flag pattern.

You can see the breakout in this 2 year long weekly bar chart

The HUI (Amex Gold Bug Index) is still above its 7 week long uptrend line.
This can be seen in this 6 month HUI chart

Related to the Baltic Freight Dry Index is lumber prices in the US. Since the US stock markets topped out, the US housing industry has been a major factor in keeping the US economy from plunging. It looks like that factor is weakening.

Take a look at this US lumber futures contract that made a new 3 1/2 month low on Friday

It looks like US lumber put in a longer term double top the middle of last year.
This can be seen in this 2 year long weekly bar chart

What does the US Treasury and the Fed have a solid history of doing when the US economy is threatened in some way? They create USD out of thin air by hook or by crook. Sellers of gold then demand even more per ounce of these newly devalued USD.

"Hunter S Thompson said his beat was the death of the American dream. You can see why he ate his gun. Everything he hated has returned. Nixon is back in the White House, Rumsnamara risen from the dead, bombs falling on other peoples’ suburbs. The Pentagon is lying again and democracy stalks yet another helpless country. This time the young are already dead and there will be no joyous anarchy. The press, housebroken, pees where it is told. But he gave it a hell of a try."
- Fred

Friday, June 24, 2005

Stephen Roach of Morgan Stanley

The US economy ain't held together with anything more than chicken fencing and tie wire. When they bust loose, there isn't going to be anything but a sick feeling in the stomachs of those left holding the bag (real estate, general US stocks, US government notes and bonds, and corporate debt). Sure, a lot of debtors are going to be in trouble, but that means a lot of creditors are going to be in trouble. The Piper could care less who does the paying.

Stephen Roach:

June 21 (Bloomberg) -- Stephen Roach, chief global economist at Morgan Stanley in New York, comments on the Federal Reserve, U.S. monetary policy and the dollar. He spoke in an interview today.

On Federal Reserve policy: ``We have an irresponsible, reckless monetary policy that is keeping real interest rates artificially low and we're fooling asset-dependent American consumers to keep on binge-buying.''

`Don't give the Fed all this credit. They have taken rates from negative to zero'' in real, inflation-adjusted terms. `They're still providing a lot of candy for the carry trade and all these other speculative activities that are keeping the U.S. economy afloat artificially.''

Actually it's worse than that. Since the US government artificially figures inflation at too low of a rate, interest rates are still negative in real terms. Roach is being kind.

The US big casinos:

Not sure what to make of this, and this is old news, but lists of estimates of the notional amounts of otc derivatives that big casinos are holding are starting to come out in newletter advertising booklets being sent out in the mail to people's homes. These estimates are close enough to get the picture of the top 25:

JP Morgan Chase 43,026 billion USD worth (that's 43+ trillion)
Bank of America 16,555
Citigroup 15,530
Wachovia Bank 3,025
HSBC (their US entity) 1,753
Wells Fargo Bank 738
Bank One 709
Bank of New York 617
State Street Bank & Trust 372
Fleet National Bank 363
National City Bank 239
National City Bank of Indiana 128
Mellon Bank 113
Keybank 98
PNC Bank 92
Suntrust Bank 88
LaSalle Bank 63
Standard Federal Bank 53
U.S. Bank 48
Merrill Lynch Bank 44
Deutsche Bank Trust Company 34
Northern Trust Company 33
First Tennessee Bank 28
Capital One Bank 26
Union Bank of California 22

I'd have those numbers in a nice neat column but the program only counts one spacing key stroke.

Jim Sinclair has flat out stated that the otc derivatives scene is the biggest criminal activity in the history of man.

"So dominant is Morgan Chase in the derivatives market that its exposure looks like typographical errors" - James Grant, Interest Rate Observer

When the dodo hits the fan, hyper inflation of the USD won't surprise me a bit.
A partial freeze up of the financial system won't surprise me a bit. There is a good reason that the Fed is screamingly unconstitutional. It is still capable of creating astonishing amounts of USD both for the US government's benefit and its own benefit. Guess what this does to the USD price of gold and silver. But then again, who cares about or knows about the constitution now a days, why it even exists.

The scene is surreal.

I'm still waiting for someone to analyse the balance sheets and income statements of the brokerage houses in the US.

Here's an ugly sight:
GE's stock taking a dive yesterday and the day before
No wonder the Dow was down 167 and the transports a 100 or so.

To me, gold has already put in its final bottom in this long 18 month (if you're looking at horizontal price levels) or so correction. Right now it's at a confluence of a 7 month down trend line, a 50% Fib level and a resistance level of prices just a little while ago. So it's natural for it to be struggling to go up at the moment. It's doing a good job at struggling. It went up yesterday despite the USD going up. This market has changed, baby! Look at it this way. It's the pause that refreshes. Phase two of the gold and silver bulls have already thrown off their lines and gotten underway. The bow, stern and spring lines are stashed below and they're looking at the scenery.

Thursday, June 23, 2005

Silver and Ferdinand Lips

www.Silberinfo.de translated a May, 2005 interview of Ferdinand Lips.

About Ferdinand Lips:

"Born in Switzerland in 1931, Ferdinand Lips, is a well-established and respected authority on gold and the gold market. His roots are in banking where he started his career, and became a co-founder and a managing director of Rothschild Bank AG in Zurich.

In 1987 he opened his own bank, Bank Lips AG, also in Zurich. He retired in 1998 when he sold his equity interest in the bank. Not being one to sit around idly, Mr. Lips continues to be very active in the banking, gold and financial fields. He is on the Board of various companies, among them African gold mining companies. He is also a Trustee of the Foundation for the Advancement of Monetary Education (FAME) in New York.

He has written two books previously (Das Buch der Geldanlage in 1981 and Geld, Gold und die Wahrheit in 1991). Gold Wars is his third book and expresses his views on gold, the gold standard and the gold exchange standard as well as the various attempts to manipulate gold and eventually push it aside. As a Swiss, he dedicates an important part of the book to the events leading up to the partial, but substantial, sale of Swiss gold reserves."

Lips has this to say about silver:

"In 3 to 5 years we could see a Dow Jones at 3,000, a gold price of 3,000 per ounce (in 1980, the Dow Jones was at 850 and Gold as well at 850; therefore 1 : 1) and a silver price of $200 per ounce. In both cases, crashs undoubtedly might occur. In the case of hyperinflation the Dow could, as you said, shoot to 20,000 and a gold ounce to $20,000 as well."

The rest of the translated interview is here

Wednesday, June 22, 2005

Baltic Freight Dry Index

"In his famous book, “Manias, Panics, and Crashes,” Charles Kindleberger documented that all manias are accompanied by frauds that surface when the mania turns into a crash."

This link is to a Frank Veneroso report entitled VENEROSO’S VIEW, Commodities: Base Metals, Market Manipulation Outlook: Very Bearish

There is a Baltic Freight Dry Index chart as well as a Baltic Freight Dry Index chart with the price of copper overlaid on it.

If there is a world economic correction coming, expect governments to create fiat tokens out of thin air to fight it, because that is usually what they do. Creating fiat tokens out of thin air is good for the price of gold and silver.

Oil and the Yuan

Rising prices that the average Tom, Dick and Harry has to pay normally day to day, week to week, month to month are rising in China and upsetting the Chinese. They had wopping price inflation at the time of the Tianimen Square suppression.

The Chinese central bank has had to create a lot of Yuan out of thin air so that they have something to buy USD with to keep the Yuan pegged to the USD. Selling the Yuan, to buy USD, depresses the value of the Yuan. China buys a lot from other countries and has had a deficit with most of its trading partners unlike its US trading partner. So, the cost of imports has been going up for the Chinese since the USD topped out the beginning of 2002.

US oil inventories are above average with new oil price highs. So maybe the information privileged know to stock up on oil prior to a new phase/event/push of WWIII.

Bush just might be crazy enough to start bombing some other country(s). The US economy is slowing slightly. If the slowing speeds up, he'll need a new distraction for Americans to pay attention to.

Nasty business, this government stuff.

Now this is not to say that the overall bull market in commodities is over. But there could be a decent correction coming up.

Tidbit:

The Central Fund of Canada is trading at virtually no premium. A screaming steal and contrarian indicator. You have to go back to the beginning of the start of the gold bull to find this condition.

Monday, June 20, 2005

The World Economy Is Heading Down

The global economic cycle starts with an increase in "money" available to loan, usually accompanied by a decreased cost of "money". Then international trade picks up. Then the price of commodities picks up. Then global shipping rates pick up. And shipping rates did pick up, a lot. Well, some global shipping charter rates are now diving.

In the last month or two, iron ore rates from Australia to China are down about 67% to about USD 10/ton. Iron ore rates from Brazil to China are down about 50% to about USD 21/ton.

The US Treasury and Fed, with the significant help of the 51st state of Japan, has created huge amounts of USD (remember, USD can not be created without creating credit / debt, also known as liquidity). A number of times since the early '80s there have been threats of an economic slow down in the US. The treasury and Fed have always responded by creating large amounts of USD to be loaned or spent. This tactic or trick will not work forever as the world has only so much real value to loan the US. That point is for all practical purposes here, although it is the beginning of that point.

Thursday, June 16, 2005

TIC Report - Treasury International Capital - Part II

Dan Norcini has put up 2 charts relating to the TIC report. They are in .pdf form, so you can blow them up, enlarge them, grab them, move them around and so forth. See them real good. Links to them are further below in this post. He started the charts when the USD Index went below the psychologically important 100 level. The USD Index topped out at around 121 at the beginning of 2002. USD Index overall chart patterns are indicating a low of about 60, although that can take a couple of years to happen assuming some nuetron bomb in the otc derivatives scene does not go off.

The first chart is "Balance of Trade vs. Net Capital Flows". "Balance of Trade", or the US trade deficit, is a negative number and is upward sloping indicating a growing US trade deficit. The last two monthly numbers are less than the trade deficit. There is less time between this most recent negative number group and the last negative number group than the time period between the last negative number group and the negative number group before that one.

We need to watch to see if "Net Capital Flows" are going to stay below the US trade deficit for 4 months instead of 3 months this time. Of course at some point they are going below the trade deficit and stay below the trade deficit because of the huge amounts of debt of every kind that the US has and is continuing to build up even more. After all, there is only so much savings in the world for the US to borrow. And even right now the US is not wealthy enough to pay back, in real terms, all that it has borrowed from the rest of the world. If and when the "Net Capital Flows" do get bigger than the trade deficit again, we need to watch by how much that happens as well as for how long. The world is looking for a trend change here.

Here is the link to the "Balance of Trade vs. Net Capital Flows" chart. Feel free to save it to your hard drive.

The second chart is the US Treasury holdings of Japan, China and South Korea, the US's big three customers. The countries with the big amounts of USD denominated central bank reserves. My eye says the amounts are in decline.

Here is the link to the chart of US Treasury holdings of Japan, China and South Korea. Fell free to save it to your hard drive.

Remember, the US Treasury changed all the numbers in the series starting with the last report for the numbers ending in March. The US Treasury changed the numbers downward so that the lower March numbers did not look so bad historically, I guess. The US Treasury did this with no note saying that they did it let alone a note explaining why and how. So these numbers are suspect. Actually, now a days, I can't think of any numbers that matter from the US government that can be really trusted.

Ultimately the real situation will be seen in the USD Index (the FX markets) and the US Treasury note and bond markets. These are the markets that are going to impose the disipline on the US, the markets that are going to get the Piper "hell or high water".

When it gets to the point where the US can not borrow enough to maintain its current life style, standard of living, the US Treasury is going to start sending IOUs to the Fed, who takes those as an asset and starts creating digitial USD with strokes on a key board and sends the digital USD back to the US Treasury. So the Fed at no cost to itself creates digital dollars for the US government and gets paid digital interest year after year for doing it. Such a deal! The US government will then spend those new digital dollars into the economy thus compounding the problem called inflation, which is a tax, or maybe hyper inflation, which is a hyper tax, if history is any guide.

Wednesday, June 15, 2005

TIC Report - Treasury International Capital

The totals are increasing but not enough to make up for the increasing total of the
current account deficit which is mostly the trade account, which is in deficit. Between the current, trade and budget deficits, the US is borrowing the best part of a trillion USD a year from the rest of the world to maintain its current standard of living. How long do you think the rest of the world will keep lending an irresponsible spendthrift this amount of "money"? It looks like that lending is slowing down. A negative for the USD. No wonder the USD, notes and bonds are toppy/topping. I would guess that this report was released to the special few a few days before its official release date, if I had to guess from the charts of the USD, notes and bonds.

Jim Sinclair says that the TIC report was $53.6 billion below the lowest published expectation. Expectations are important. They can start momentum in markets which is what really moves markets. I think that momentum is already underway in gold and silver. Underway to the upside.


MAJOR FOREIGN HOLDERS OF TREASURY SECURITIES
(in billions of dollars)

HOLDINGS 1/ AT END OF PERIOD

2005 2005 2005 2005 2004 2004
Apr Mar Feb Jan Dec Nov
COUNTRY Series V Series IV

Japan 685.2 679.5 680.3 679.3 689.4 692.5
Mainland China 230.4 223.5 224.9 223.5 222.9 220.2
United Kingdom 3/ 125.2 122.2 111.6 101.1 101.0 89.8
Caribbean Banking Centers 4/ 124.6 137.2 104.7 94.2 71.4 75.7
Taiwan 70.6 71.1 68.5 68.3 67.9 67.1
Germany 60.8 56.0 53.0 53.8 50.2 52.6
OPEC 60.6 62.2 67.6 67.0 62.1 63.0
Korea 55.9 57.1 53.1 53.6 55.0 55.3
Hong Kong 47.2 45.2 45.2 45.3 45.1 42.4
Luxembourg 45.3 42.2 42.9 41.7 41.6 40.6
Switzerland 43.3 44.1 44.3 40.8 42.1 41.9
Canada 42.1 38.4 38.0 35.4 33.3 32.2
Mexico 31.6 32.5 33.0 33.5 32.8 33.5
Singapore 30.0 30.7 29.2 29.9 30.3 30.4
Norway 29.8 16.9 33.8 35.1 30.4 32.6
France 22.3 25.1 27.2 21.2 20.0 19.5
India 18.0 18.4 18.1 15.9 15.0 15.5
Netherlands 17.0 18.1 16.5 16.8 17.8 16.3
Sweden 16.8 16.9 16.3 15.8 16.9 16.0
Brazil 16.2 14.7 13.6 13.8 15.1 15.3
Belgium 15.7 15.3 16.7 16.8 17.0 16.8
Italy 14.6 14.5 13.7 13.0 12.8 12.8
Ireland 13.1 17.2 17.8 15.6 16.3 16.9
Poland 11.9 11.4 10.6 10.2 10.8 10.8
Israel 11.6 14.6 14.3 14.9 13.7 13.2
Thailand 11.1 12.1 13.0 13.3 12.5 12.8
Turkey 10.7 11.4 10.4 12.9 12.0 14.5
All Other 128.5 128.0 128.0 125.8 128.8 127.4
Grand Total 1990.1 1976.5 1946.3 1908.6 1883.9 1877.6

Of which
Foreign Official 1236.1 1227.9 1242.5 1238.3 1232.7 1237.1
Treasury Bills 230.1 235.8 235.5 242.6 244.6 256.0
Treasury Bonds&Notes 1006.0 992.0 1007.0 995.7 988.1 981.1

Department of the Treasury/Federal Reserve Board
June 15, 2005
1/ Estimated foreign holdings of U.S. Treasury marketable and nonmarketable bills, bonds and notes
reported under the Treasury International Capital (TIC) reporting system are based on annual
Surveys of Foreign Holdings of U.S. Securities and on monthly data.
2/ Denotes series break: Series IV positions data for this month and prior periods to June 2003 are based on the
end-June 2003 annual Survey; Series V positions data for this month and subsequent periods are based on preliminary
results from the end-June 2004 annual Survey.
3/ Includes Channel Islands and Isle of Man.
4/ Includes Bahamas, Bermuda, Cayman Islands, Netherlands Antilles, and Panama.

Monday, June 13, 2005

US Dollar and US Treasury Notes and Bonds

The US dollar gapped up today, in what could be an exhaustion gap, as it made a fourth up day in a row in a 13 week up trend. This is topping action. So it makes sense that gold again today did the unusual and went up today with the US dollar.

US Treasury notes and bonds are acting toppy here. Two Fridays ago they had large outside reversal days. Today, Monday, both completed 4 down days in a row end of upward trend signals. At the same time they were working on these signals they made 2-b end of upward trend signals completed last Friday. They have been in 10 week uptrends.

The US bonds and notes look like they have already put in tops, while the dollar looks like it is in the process of topping right now.

** Yen gold made a new high today. **

Where is this "money" coming out of USD and US Treasury debt going to go? I can't see real estate almost anywhere in the world. I can't see government debt or corporate debt in most places in the world. I can't see stocks in most places in the world as the US economy is heading for a crash and will seriously and negatively effect many other economies in the world. That basically leaves other non-US "money", natural resources, and gold and silver related safe havens. No wonder gold and silver stocks started going up about 2 weeks before gold bottomed.


Jim Sinclair today:

Trader Dan gave you an important insight on gold earlier today. North American investors are ignorant of the true currency role of gold which Europe and - to a high degree Asia - know as being axiomatic.


I have outlined to you how gold will be a very important ingredient of the end game of this generational bull market experience. I am prepared to answer your questions on this key element.

A modernized and revitalized Federal Reserve Gold Certificate Ratio will return no later than 2012 but not in the way it existed before. The situation taking place is of a balance sheet form with US debts and financial obligations internationally so far outstripping US Treasury assets. Gold convertibility is a trade fix that is wholly outdated by the growth and fluidity of international trade as to be a relic of the past.

The modernized and revitalized gold cover clause (Federal Reserve Gold Certificate Ratio) is going to take gold back into the monetary system. In my view, this is a certainty and a critical part of the end game of 2012.

It is total nonsense to feel that jewelry is the critical element of gold’s value. The major mining companies’ creation, the Gold Council, should be flogged for pushing the jewelry view.

Gold is headed first to $518-$529 for monetary reasons not only as a currency of choice but also as the key element to the formation of the new economic world system of Authoritarian Free Enterprise.

A close 3% above $529 will take gold back into the monetary system as it moves to balance the US Treasury’s International balance sheet with the published amount of gold held by it. Then it will be secured to that balance in a manner that will automatically keep the balance. The US Treasury will have nothing to do then to accomplish this. The reason will be that instruments to speculate on this cover will act in the marketplace to accomplish it.

This will not be created by open-minded, fair and caring financial stars but rather to guarantee the dollars held by the giants of Authoritarian Free Enterprise who influence most of the world’s wealth and want to place that wealth in something that will hold its buying power.

The good and maybe bad news is that Authoritarian Free Enterprise works for the authoritarians. It is a merger between modern economics and the 18th Century where hourly workers are concerned.

I do not report on what I would like to see but rather what I see. The answer to protecting yourself is simple. Get rich or richer by knowing what the game is all about and positioning yourself to benefit from that knowledge.

To assume the leaders of today are stupid is to be stupid. Yes, the kingmakers pick a certain kind of front man, but remember the popular photo-op personality is simply a front man.

What is behind them and in the crowd both publicly and covertly are the finest minds on the planet. They will win and we need to know how to use that victory as our lifeboat to safety on a highly disturbed economic sea. One thing for sure is that trading for insurance is an oxymoron of world class proportions.

You see what I am doing to win. It is not writing www.jsmineset.com which is a service. I do not sell a subscription, having absolutely no desire to manage your money in any way. You cannot hire me but I serve you to the best of my ability.

Through this page I am making a transfer to you of everything I know. I have taught you how to trade by keeping it simple so no matter what happens you know what a trend and trend change look like. Trading everything all the timer will prove Murphy’s Law. Murphy will get you because no one knows the time and place - even the braggarts.

Gold is a key player in the end game so I play the game not for peanuts but for the elephants. This is my last great play so that when I have succeeded I will have transferred all that I know to you free of charge and benefited those to whom I have a fiduciary duty. Then I will say “goodbye” and “call me next time you need me.” I plan to live a long time.

Saturday, June 11, 2005

Gold, Euro, the US Dollar and Silver

During this bull market in gold and silver the highest high gold made in Euros was back at the beginning of 2003 at about 351.5, until Friday of this week where it broke through that high after all this time, to a little over 352. "Price action makes market commentary.". Europeans are waking up to gold. The Japanese, traditionally and still are big savers, still are not hot on gold. Not to worry. Just more demand waiting in the wings.

Gold and silver usually move inversely to the USD on daily charts. However, in a small way, a few times, that did not hold true in the last month or so. This Friday the unusual happened again but in a substantially bigger way. The USD went up about .75 while gold went up over 3. Highly irregular. Gold would have normally gone down 2 or 3. To me, what happened today was smart buying of what was gold weakness since the USD went up substantially. It is just that the buying of gold weakness was so much, panicky even, that gold went up substantially. That was smart buying of weakness but a lot of it. The timing makes sense when you look at the long term charts. The big buyer in New York was JP Morgan (usually smart money or represents smart money). It doesn't matter much whether it was for their own account or their clients' accounts. It was smart buying.

Unusually, open interest for gold is low which historically is bullish while the opposite is true for silver. In silver the commercials have big short positions while the spec funds have big long positions which is normally historically bearish for silver. One of these days the commercials are going to panick and start to get out of their short positions while the spec funds hang on to their big long positions and there is a big take off in the price of silver. By the end of next week we'll have a better idea if this is about to happen.

US 30 and 10 year Treasuries were down on Friday. "Money" coming out of US Treasury debt. Where is it going to? Did it go to gold Friday? Those big outside reversal days in the 30 and 10 year US Treasury debt are still holding.
The 30 year bond
The 10 year note

Maybe some are waking up to the crazyness of hanging on to that junk at these high prices. Particularly since there is a tsunami wave of higher prices heading for the US. Higher prices mean higher interest rates which mean lower prices for 10 year notes and 30 year bonds. This is a good time to be selling or getting out of government or corporate debt since their prices are sooooo high right now. Increasing interest rates go hand in hand with bull markets in gold and silver. Interest rates are historically really low right now. It looks like there is a lot left to the gold and silver bull markets both in time and price.

One more thing. The USD looks like it is doing good if you look at the USD Index or look at the USD vs. the Euro. It is, but there are other important fiat tokens out there. Compared to the Canadian dollar and the Japanese Yen the USD is *not* doing that well. Neither is it doing well against raw materials.

Monday, June 06, 2005

The CRB Index will be changed

May 10, 2005 09:06 AM US Eastern Timezone

Reuters and Jefferies Announce Significant Update to CRB Index; 50-Year-Old Commodity Benchmark Undergoes Tenth Revision

NEW YORK--(BUSINESS WIRE)--May 10, 2005--Reuters (LSE: RTR, Nasdaq: RTRSY), the global information company, and Jefferies Financial Products, LLC, a leading provider of commodity-related products for institutional investors and a subsidiary of Jefferies Group, Inc. (NYSE: JEF), today announced a strategic alliance to revise the Reuters CRB Index, to be renamed the Reuters/Jefferies CRB Index ("RJ/CRB").

The CRB Index is a leading global benchmark for commodity price movements. The Index is constructed of commodity futures contracts from the energy, industrial metals, precious metals, grains, livestock and soft sectors and offers diversified exposure to the commodity markets.

Since its launch in 1957, the CRB Index has undergone periodic revisions to maintain an accurate representation of the performance of commodities as an asset class. Effective June 20, 2005, the Index will undergo its tenth revision, amending its components to include three additional commodities (unleaded gasoline, aluminum and nickel) and remove one commodity (platinum). Component weightings will now take into account the relative significance and liquidity of the various commodities markets. In addition, the Index will rebalance its component weightings monthly and will derive its value from nearby futures prices.

The link to the press release

They have distorted the PPI, radically distorted the CPI and now they are going to seriously distort the CRB Index. Not only changing the components but taking into account "relative significance" and "liquidity" which sure sounds all very subjective to me, and "rebalance its component weightings monthly".

So I guess we may get a brand new index as often as every month. No more objective indexes of inflation unless some entity comes up with a replacement for the CRB Index. The "powers that be", the king makers, want to hold off the public's serious concern with inflation for as long as possible. Their attempts to distort reality are now blatent. This should have the smart and educated quite worried and seriously going for the gold and silver metals themselves. Possession of gold and silver is necessary to defend oneself from the break down of the world's out of control banking system. The best minds out there figure the financial system goes beserk from say 2008-20012 so you only have a few years to get ready. When it comes to gold and silver most of that getting should already be done or should be done very shortly from now.

US Treasury Notes and Bonds

Between Monday and Thursday US Treasury Notes and Bonds went up 4 days in a row (end of upward trend signals) and then on Friday made big outside key reversal days.
The US Treasury 30 Bond
The US Treasury 10 Year Note
This might be signaling the end of increased purchases of US Treasury debt by the rest of the world, particularly central banks. We will have to watch prices around the world in all sectors to see were all the USD is now going to go to since the world is currently awash in USD and since the Bush administration of the US government does not appear to have any intentions of decreasing the government's budget deficit and the country's current account and trade account deficits. Or in other words the US Treasury and the Fed are going to do what ever it takes to create enough USD to send out of the US to maintain the US's current and trade account deficits, thus the phony unearned living standard within the US, which ultimately will come to an awful end.

What the US government will have to do is have the Treasury write I.O.U.s and send them over to the Fed. The Fed places them on their books as an asset which increases the Fed's reserves thus making it able to create more USD which it loans back to the US Treasury. Quite the racket.

If the rest of the world along with the domestic economy will not borrow more USD so that more USD can be created, then the US Treasury will do the borrowing. For Americans living standard to be maintained the current and trade accounts must keep expanding. More debt has to be taken on by some entity. No new debt taken on means no new USD can be created. So here comes bigger US government spending.

And you thought it was big already. Wait till you see hyperinflation big.